Sell Off Prompts Deeper Coverage

It was still another demonstration of how complex and closely linked the world's economies are. A selloff on the white-hot Shanghai stock market spread like a virus from Asia to Europe to the United States, and by the close of trading in New York on Feb. 27 the Dow Jones Industrial Average had plunged 400 points -- the worst drop since Sept. 11, 2001.

What did it mean? Were the world's markets dangerously overheated after years of gains, or did the slide result from one-time factors? And how should investors react -- take their profits, hold tight, or buy newly created bargains?

Answering those questions fell to the market reporters and personal-finance writers whose jobs seem to get more complicated with each passing year. Financial markets, always a bit of a mystery to those outside the trading ranks, can these days be downright bewildering; hedge finds, derivatives, computer-based trading and the rise of economic powerhouses such as China and India have seen to that.

Adding to the pressure is the fact that more Americans than ever are investing and taking an active interest in the management of their money. These readers want information -- quick, accurate and actionable. "People don't like 'talking head' coverage," said Brian J. O'Connor, personal finance editor of the Detroit News. "They want to know, 'What do I do?'"

The complexity goes far beyond stocks. "The stock market is almost the easiest thing to cover, because you have individual stock prices and indices that go up and down," said Walter Hamilton, markets reporter in the New York bureau of the Los Angeles Times. "I think the real difficulty is in some of the other markets -- bonds, derivatives and such. They are leaps and bounds more esoteric than the stock market."

In all of those cases, said Hamilton, the big challenge facing business journalists is understanding what makes a market move, whether it is the crisis in subprime mortgage lending or events happening at a bourse halfway around the world.

In the case of February's meltdown, "We really didn't know that day what was happening," said Hamilton. "We knew the Shanghai market had fallen dramatically after a huge runup there. We had written about that, and we had a reporter on the scene who a few weeks earlier had written about the huge amount of speculation by mom-and-pop investors."

When the selloff began, Hamilton did what years on the beat had prepared him to do. "It was a matter of going to sources I could trust to find out why things were happening and finding the deeper significance of why people were selling in the U.S. In this case, it obviously wasn't really tied to Shanghai but to underlying economics," he said.

The Times's coverage raised a host of reasons for the drop -- the long run-up of prices, pessimistic comments by former Federal Reserve Chairman Alan Greenspan, even a technical glitch that dumped a large number of sell orders on the market all at once. And it also reminded readers that investments don't always go up -- an oddly comforting assertion for those who thought the bottom was dropping out of the market.

Of course, authoritative coverage requires knowledge and experience. Almost any business writer can recall being new to the beat and feeling overwhelmed by the complexity of a story.

These days, many financial journalists are finding it useful to get specialized training. Among them are Pamela Yip, a personal finance reporter at The Dallas Morning News, and Shannon Buggs, a columnist at the Houston Chronicle. Both went through the certified financial planner course offered by the University of Houston.

The need for training is clear, said Yip. Personal finance coverage "has become much more complex, and it's a challenge to break the complexities down for readers," she said.

Yip has been writing about the topic for some 15 years and studied economics in college en route to getting a degree in journalism. Even with that experience, taking the CFP course "has really helped me a lot in my work, I would recommend it for everyone working as a personal finance reporter," she said. With sources, "It helps you talk their language. They respect you more, and you understand much more."

For Yip, one lesson brought home by the February market plunge is that Americans need to know more about how the global economy is affecting their lives. "I try to bring home the point that the markets are interlinked, mainly because of the speed of the information," she said. "One thing happening in the U.S. can trigger millions of dollars being transferred globally. China is becoming something we really need to pay attention to."

The key is delivering the news in a fashion that readers find useful. In the aftermath of Feb. 27's slide, Houston Chronicle business columnist Loren Steffy wrote that while Greenspan "may not have single-handedly cratered the global market," his warning that a recession was possible certainly played a role. Steffy went on to write, "The cause of this week's downturn is hard to pin down, and largely irrelevant. Whatever the spark, it was fueled by widespread investor concern that we were overdue for a correction. The market, after all, can reflect our optimism, but it also is a mirror for our collective financial fears. . . . No one was better at putting those fears in perspective, or tempering rampant optimism, than Greenspan."

"I try to couch these things in terms that people can understand," said Steffy, who spent 12 years at Bloomberg before coming to the Chronicle three years ago.

Is that harder now that financial coverage is so complex? "I'm not sure that it's that much more complex than it used to be," he said. "The market has really opened up. Even average newspaper readers have a better understanding of what drives the market, so they are looking for more information. They don't want to know what the Dow did. They want to know why a particular segment of the market is moving."

Still, most readers are disinclined to dig deeply into an arcane story if it isn't clear they need to. "You have a certain class of readers who just want to know, 'Do I have to care?'' said O'Connor, the Detroit News personal finance editor and a former Knight-Bagehot fellow. "Life is complicated enough for a consumer. If they don't have to care about the Shanghai meltdown or the subprime crisis, they'd rather not. The best value comes from giving them some kind of action they can take."

Yip stresses the need to keep readers firmly in mind when taking on a complicated story. "Sometimes when I'm covering a complex topic, I get lost in the intricacies and have to bring myself back and say, wait a minute, what will the reader really want to know about this topic? Bring yourself back to the position of the reader. What kind of questions would that person have? Approach it from there. And don't buy into the sales pitches of the industry."

Hamilton believes there is no quick way to get good at covering today's sophisticated financial markets. "Read as much as you can about it, because the more you read the more sophisticated you become. Don't accept simple explanations. And try to be willing to tell your readers what you know and what you don't know. We all suffer from that. Sometimes there is a lot we don't know, and often the people to whom we're speaking don't know but for whatever reason act as if they do."

Indeed, Steffy urges reporters to be honest about the limits of their knowledge. "That's the hardest thing for young reporters," he said. "You're a little intimidated and you don't want to appear stupid. I always tell reporters not to be afraid of what your source thinks. What will impress them are the words you ultimately write, and you can't do that if you don't understand what you are writing about. If you are covering markets, don't be afraid to ask how they really work."

Copyright © 2008 Donald W. Reynolds National Center for Business Journalism